O'Reilly Auto Parts 2003 Annual Report Download - page 44

notes to consolidated financial statements (continued)
page 42
earnings per share
Basic earnings per share is based on the weighted-average outstanding common shares. Diluted earnings per share is based on the
weighted-average outstanding shares adjusted for the effect of common stock equivalents. Common stock equivalents that could
potentially dilute basic earnings per share in the future that were not included in the fully diluted computation because they would
have been antidilutive were 66,750, 816,250 and 28,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
cash equivalents
Cash equivalents consist of investments with maturities of 90 days or less at the day of purchase.
concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and trade notes receivable.
The Company grants credit to certain customers who meet the Company’s pre-established credit requirements. Concentrations of
credit risk with respect to these trade receivables are limited because the Company’s customer base consists of a large number of smaller
customers, thus spreading the trade credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring
procedures and generally does not require security when trade credit is granted to customers. Credit losses are provided for in the
Company’s consolidated financial statements and consistently have been within management’s expectations.
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable
and long-term debt, as reported in the accompanying consolidated balance sheets, approximates fair value.
notes receivable
The Company had notes receivable from vendors and other third parties amounting to $27,636,000 and $2,362,000 at December 31,
2003 and 2002, respectively. The notes receivable, which bear interest at rates ranging from 0% to 6%, are due in varying amounts
through August 2017.
new accounting pronouncements
In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. Under the new rules, a liability for the costs associated with an exit or
disposal activity will be recognized when the liability is incurred as opposed to the date of an entity’s commitment to an exit plan.
The new rules are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of the new rules
did not have a significant impact on our consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, amending
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 gives companies electing to expense employee stock options
three methods to do so. In addition, the statement amends the disclosure requirements to require more prominent disclosure about
the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both
annual and interim financial statements. The Company has elected to continue using the intrinsic value method of accounting for
stock-based compensation, therefore, SFAS No. 148 did not have any effect on the Company’s consolidated financial position or
results of operations. See Note 9 to the consolidated financial statements for additional information regarding stock-based compensation.